Guarding Intellectual Property

Diane Glover

Mar 06, 2020

Intellectual Property

Your company probably has security systems in place to prevent theft of computers, machines, and products, yet you may not be doing enough to safeguard your customer lists, new product designs, and marketing strategies. Manufacturers rank second only to high-tech companies as targets of intellectual property theft.

Businesses need to make protection of trade secrets a high priority. The potential loss in terms of competitive advantage, market share and revenue can be staggering.

Intellectual property thieves can include employees, former employees, on-site contractors, vendors, and foreign and domestic competitors. Hackers operating from remote locations are a threat, but the greater risk comes from people who know your business and are physically present on the premises — especially employees who steal information and sell it to competitors, either while they’re still working for you or after they leave their jobs.

In many environments, access to information can be ridiculously easy. For example, employees may have passwords taped under their keyboards or tacked on their bulletin boards. Others may divulge information to personable service technicians who come to repair office equipment. And perhaps no one questions a stranger who walks authoritatively into an empty conference room and plugs into a live Ethernet jack, gaining access to the company’s network and walks out with a stash of financial information.

When intellectual property theft occurs, it may be months before your company discovers it. One company’s nightmare started when a contract computer programmer not only stole their new product design but also trashed computers in an attempt to sabotage development. The act set the company back a year and the information ended up in a competitor’s hands.

Many people who steal trade secrets get away with it. Prior to 1996, it was difficult to prosecute such cases, but in that year, Congress passed the Economic Espionage Act. One provision (Section 1832) addresses the theft of a trade secret related to or included in, a product. The punishment is harsh. A convicted individual can be fined up to $500,000, sentenced to up to 10 years in prison, or both.

Under the law, a trade secret is broadly defined. It includes all types of information that the owner has taken reasonable measures to keep secret and that has independent economic value. For example, financial, business, scientific, technical, economic, or engineering information; including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs or codes.

Here are just a few tips for guarding intellectual property:

  • Perform a risk assessment for intellectual property, just as you would for real property.
  • Enlist the help of all employees to watch out for suspicious activity. Role-playing possible scenarios, such as someone plugging into an Ethernet jack, can be instructive.
  • Carefully screen new employees and contract workers, and require them to sign confidentiality agreements.
  • Require delivery people to show more than one form of identification — for example, a company ID and a driver’s license.
  • Encrypt files and folders so that only authorized people to have the “keys” to unscramble the data. That way, if a thief steals a laptop computer, the information would be meaningless.
  • Establish levels of access to files and folders. For example, whoever handles the company’s financials determines which people or workgroups need access to that information, and can restrict their ability to modify or delete information.

About The Author

As the Manager of Practice Growth, Diane focuses on the market awareness and growth of Kirsch CPA Group…

Read More

Sign Up for Email Updates

Accounting & Financial News

What’s the Difference Between a Calculation of Value and a Conclusion of Value?

Most business valuation assignments call for a conclusion of value. However, there may be times when a…

Construction Business Owners: Avoid These Two Common Accounting Problems

For construction companies, accounting isn't as simple as just balancing the books every month. Contractors tend to…

IRS Issues Final Regulations Regarding the Advanced Manufacturing Investment Credit

The Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act — signed into law in 2022…